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How Sustainability is Changing The Financial Sector

New Risks, Challenges and Business Opportunities for Banks and Investors under Environmental and Social Responsibility
Instructor:
Ana Lucas
3,047 students enrolled
English
What is Sustainability and how it is transforming Banks, Insurers and other Financial Institutions
The way Climate Risks become Financial Risks and put the whole Financial Sector in Danger
What are Environmental and Social Governance Principles (ESGs) and how do they help Banks and Corporations
What is Sustainable Lending and Impact Investing and Why Revaluating Corporate Loan Portfolios is Necessary
How Rating Agencies are Changing Their Approach to Rating Scores because of Sustainability
New Products and Business Opportunities: Green Loans, Green Bonds, Sustainability Linked Products
Why Banks should Stop financing Fossil Fuels and must de-carbonize their Loan Portfolios
How Regulators are aligning Governance to face all climate risks and mitigate impact to the Financial Sector
The importance of doing Business with care and responsibility for the Planet and the People
How are FIs reporting on Scope 3 emissions and why these matter
How the Carbon Markets are bringing new Risks and Opportunities to the Financial Sector

The Sustainability concept is receiving increasing attention and importance given the acceleration of climate issues and the perceived negative impact that some financing activities have on the environment or in human wellbeing.

While in the past investment and credit decisions were made to balance risks with expected return, a new dimension is now taking priority, based on the notion of ‘investing with a purpose’. This means investing and financing activities and businesses that have a positive impact in the environment or the society. At the same time, divesting from businesses that contribute to deterioration is under evaluation. This will have drastic consequences for Banks and other financial institutions, leading to unprecedented changes as loan portfolios/assets under management are originated, re-evaluated, and/or winded up. Other opportunities related to the trading of carbon offsets and development of carbon markets must be considered.

Climate change risks are drastic to the Financial Sector and of extremely importance. They are crucial to the point of engaging the Banks’ decision making at all levels, from client acquisition and relationship management, through Top Management – and of course Risk Management and Compliance. Sustainability is now an obligatory integral part of the Banks’ strategic planning and operations. New regulatory aspects are being introduced and new Governance and ways of disclosing information and rating institutions are applied.

In this course we will touch upon all the above and also on the controversial topic of why we need Financial Institutions to stop financing flows to fossil fuels. We discuss why Sustainability is as well creating business opportunities and new products and boosting new career functions within institutions. We touch upon the ways banks can navigate to more greener portfolios, analyse how clients may be affected by the increased price of carbon (pollution), the importance of being evaluated by rating agencies for Sustainability parameters, and what does this all mean for the Financial sector’s reputation and future.

Course picture copyright credit to Sandra Bulla.

Introduction

1
Introduction
2
What is Sustainability and Why it Matters for the Financial Sector
3
Impact Investing or Investing with a Purpose
4
A Very Controversial Topic: Financing Fossil Fuels

The surge of new Sustainability-related Risks in the Financial Sector

1
How Climate Risks are Financial Risks and how ESG can assist the Risk Assessment
2
Climate risk categories: Physical&Transitional Risks. Transitioning to Net Zero
3
How climate risks may disturb the functioning of Financial Markets
4
ESG example: Assess, quantify and mitigate Climate Risks and their impact

The importance of Sustainability Governance, ESG and PRIs

1
SGDs and The importance of Governance for the Financial Sector and Businesses
2
Guidance for FIs: How to set up a Sustainability Strategy and proper Disclosures
3
The Principles for Responsible Banking (PRBs)
4
The crucial role of Insurance in the Transition to Net Zero

How Sustainability is changing Decision Making

1
Recognizing the Issue, Taking Responsibility, Being Accountable
2
How the Financial Sector may Transition from Financing Fossil Fuels
3
The Green contribution of FINTECH
4
Embrace a new/Sustainable Business minding ESG-related Criminal Litigation

Sustainable Finance: New Business Opportunities

1
New products/Business Opportunities/Sustainable Finance
2
Sustainability Linked Loans and Green Loans
3
Green Bonds and Sustainability-Linked Bonds
4
Financing Supply Chains in the context of Sustainability
5
Sustainable Insurance - Product Showcase
6
The surge of Green/ESG/Sustainable Investment Funds
7
Why are ESG Funds under scrutiny?

Rating Implications for Financial Institutions, Corporations and Countries

1
ESG Rating Agencies, ESG Ratings, Sustainability Reports
2
Crucial Topics in ESG Ratings - a Real case
3
Controversies around ESG and Climate Risks - Tesla, HSBC - How to argue

Expected Developments, Summary, Final Remarks

1
Reporting Scope 3 (Financed) Emissions

Why are Scope 3 Emissions the ones most relevant to describe a Financial Institution exposure to the climate emergency; Understand the concept of Financed Emissions. Insight on the timeline for reporting scope 3 Emissions and where to find guidance for financially accounting and reporting them.

2
The Emissions Gap: Carbon Credits, Carbon Offsets, Carbon Markets (part I)

How the Emissions Gap leads to the Development of Carbon Markets, how Carbon pricing (pollution pricing) mechanisms work, what are Carbon credits and offsets and how the Carbon Markets differ: Compliance or Voluntary.

3
What the Carbon Markets mean for the Financial Industry (part II)

The Prons and Cons of the Voluntary Carbon Markets, the eligibility of carbon projects for financing through the Carbon Markets, how the carbon prices are raising new risks and opportunities for Financial Institutions and what new players bring to the sector.

4
Ongoing and Expected Developments - Summary
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How Sustainability is Changing The Financial Sector
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